CASE 38-2
RADLAX GATEWAY HOTEL, LLC v. AMALGAMATED BANK
Supreme Court of the United States, 2012
566 U.S. ____, 132 S.CT. 2065, 182 L. Ed. 2d 967
http://scholar.google.com/scholar_case?q=132+S.CT.
+2065+&hl=en&as_sdt=2,34&case=15917701183349776872&scilh=0
Scalia, J.
[In 2007, RadLAX Gateway Hotel, LLC and RadLAX Gateway Deck, LLC (debtors)
purchased the Radisson Hotel at Los Angeles International Airport, together with an adjacent
lot on which the debtors planned to build a parking structure. To finance the purchase, the
renovation of the hotel, and construction of the parking structure, the debtors obtained a
$142 million loan from Longview Ultra Construction Loan Investment Fund, for which
Amalgamated Bank (creditor or Bank) served as trustee. The lenders obtained a blanket lien
on all of the debtors’ assets to secure the loan.
Within two years the debtors had run out of funds and were forced to stop
construction. By August 2009, they owed more than $120 million on the loan, with over $1
million in interest accruing every month and no prospect for obtaining additional funds to
complete the project. Both debtors filed voluntary petitions under Chapter 11 of the
Bankruptcy Code.
A Chapter 11 bankruptcy is implemented according to a “plan,” typically proposed
by the debtor, which divides claims against the debtor into separate “classes” and specifies
the treatment each class will receive. Generally, a bankruptcy court may confirm a Chapter
11 plan only if each class of creditors affected by the plan consents. Section 1129(b) creates
an exception to that general rule, permitting confirmation of nonconsensual plans—
commonly known as “cramdown” plans—if “the plan does not discriminate unfairly, and is
fair and equitable, with respect to each class of claims or interests that is impaired under, and
has not accepted, the plan.” Section 1129(b)(2)(A) * * * establishes criteria for determining
whether a cramdown plan is “fair and equitable” with respect to secured claims like the
Bank’s.
* * *
A Chapter 11 plan confirmed over the objection of a “class of secured claims” must
meet one of three requirements in order to be deemed “fair and equitable” with respect to the
nonconsenting creditor’s claim. The plan must provide:
(i)(I) that the holders of such claims retain the liens securing such claims, whether
the property subject to such liens is retained by the debtor or transferred to another
entity, to the extent of the allowed amount of such claims; and (II) that each holder of
a claim of such class receive on account of such claim deferred cash payments
totaling at least the allowed amount of such claim, of a value, as of the effective date
Under clause (i), the secured creditor retains its lien on the property and receives
deferred cash payments. Under clause (ii), the property is sold free and clear of the lien,
“subject to section 363(k),” and the creditor receives a lien on the proceeds of the sale.
Section 363(k), in turn, provides that “unless the court for cause orders otherwise the holder
of such claim may bid at such sale, and, if the holder of such claim purchases such property,
such holder may offset such claim against the purchase price of such property”—i.e., the
creditor may credit-bid at the sale, up to the amount of its claim. Finally, under clause (iii),
the plan provides the secured creditor with the “indubitable equivalent” of its claim.
The debtors in this case have proposed to sell their property free and clear of the
Bank’s liens, and to repay the Bank using the sale proceeds—precisely, it would seem, the
We find the debtors’ reading of §1129(b)(2)(A)—under which clause (iii) permits
precisely what clause (ii) proscribes—to be hyperliteral and contrary to common sense. A
well established canon of statutory interpretation succinctly captures the problem: “[I]t is a
commonplace of statutory construction that the specific governs the general.” [Citation.]
That is particularly true where, as in §1129(b)(2)(A), “Congress has enacted a
comprehensive scheme and has deliberately targeted specific problems with specific
solutions.” [Citations.]
* * *
Here, clause (ii) is a detailed provision that spells out the requirements for selling
* * * The structure here suggests * * * that (i) is the rule for plans under which the
creditor’s lien remains on the property, (ii) is the rule for plans under which the property is
sold free and clear of the creditor’s lien, and (iii) is a residual provision covering
* * *
* * * Because the RadLAX debtors may not obtain confirmation of a Chapter 11
cramdown plan that provides for the sale of collateral free and clear of the Bank’s lien, but
does not permit the Bank to credit-bid at the sale, we affirm the judgment of the Court of
Appeals.
E. ADJUSTMENT OF DEBTS OF INDIVIDUALS — CHAPTER 13
Chapter 13 of the Bankruptcy Code permits an individual debtor to file a
repayment plan that, if confirmed by the court, will discharge him from
almost all debts when he completes his payments under the plan. If, as
occurs in many cases, the debtor does not make the required payments
under the plan, the case will be converted to Chapter 7 or dismissed.
Proceedings
Chapter 13 filing is voluntary, and provides for adjustment of debts of an
Conversion or Dismissal
The debtor may convert a case under Chapter 13 to Chapter 7. On request of
the debtor, if the case has not been previously converted from Chapter 7 or
Chapter 11, the court shall dismiss a case under Chapter 13. On request of a
party in interest or the United States trustee, and after notice and a hearing,
the court may convert a case under Chapter 13 to Chapter 7 or may dismiss
a case under Chapter 13, whichever is in the best interests of creditors and
the estate, for cause, including (1) unreasonable delay by the debtor; (2)
The Plan
A Chapter 13 plan must provide that all or a portion of future earnings will be
turned over to a trustee, must allow for full payment of all priority debts on a
deferred basis, and must treat the each member of the same class equally.
Such plans cannot provide for payments over a period exceeding three years
unless approved by a court to extend up to five years.
Confirmation
The plan must comply with applicable law, be submitted in good faith,
provide for payments not less than what the unsecured creditor would have
CASE 38-3
HAMILTON v. LANNING
Supreme Court of the United States, 2010
560 U.S. ____, 130 S.Ct. 2464, 177 L.Ed.2d 23
http://scholar.google.com/scholar_case?q=132+S.CT.
+2065+&hl=en&as_sdt=2,34&case=15917701183349776872&scilh=0
Alito, J.
Chapter 13 of the Bankruptcy Code provides bankruptcy protection to “individuals] with
regular income” whose debts fall within statutory limits. [Citation.] Unlike debtors who file
under Chapter 7 and must liquidate their nonexempt assets in order to pay creditors,
[citation], Chapter 13 debtors are permitted to keep their property, but they must agree to a
court-approved plan under which they pay creditors out of their future income, [citation]. A
bankruptcy trustee oversees the filing and execution of a Chapter 13 debtor’s plan.
[Citations.]
Section 1325 of the [Bankruptcy Code] specifies circumstances under which a
bankruptcy court “shall” and “may not” confirm a plan. §1325(a), (b). If an unsecured
creditor or the bankruptcy trustee objects to confirmation, §1325(b)(1) requires the debtor
either to pay unsecured creditors in full or to pay all “projected disposable income” to be
I
* * * Before the enactment of the Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005 (BAPCPA), [citation], the Bankruptcy Code (Code) loosely defined “disposable
income” as “income which is received by the debtor and which is not reasonably necessary
to be expended” for the “maintenance or support of the debtor,” for qualifying charitable
contributions, or for business expenditures. §1325(b)(2)(A), (B).
The Code did not define the term “projected disposable income,” and in most cases,
bankruptcy courts used a mechanical approach in calculating projected disposable income.
expenses are included, [citations.]
II
Respondent had $36,793.36 in unsecured debt when she filed for Chapter 13 bankruptcy
protection in October 2006. In the six months before her filing, she received a one-time
buyout from her former employer, and this payment greatly inflated her gross income for
April 2006 (to $11,990.03) and for May 2006 (to $15,356.42). [Citation.] As a result of these
payments, respondent’s current monthly income, as averaged from April through October
2006, was $5,343.70—a figure that exceeds the median income for a family of one in
Kansas. [Citation.] Respondent’s monthly expenses, calculated pursuant to [citation] were
$4,228.71. [Citation.] She reported a monthly “disposable income” of $1,114.98 on Form
22C. [Citation.]
On the form used for reporting monthly income (Schedule I), she reported income from
her new job of $1,922 per month—which is below the state median. [Citations.] On the form
Respondent filed a plan that would have required her to pay $144 per month for 36
months. [Citation.] Petitioner, a private Chapter 13 trustee, objected to confirmation of the
plan because the amount respondent proposed to pay was less than the full amount of the
claims against her, [citation], and because, in petitioner’s view, respondent was not
committing all of her “projected disposable income” to the repayment of creditors,
[citation]. According to petitioner, the proper way to calculate projected disposable income
was simply to multiply disposable income, as calculated on Form 22C, by the number of
months in the commitment period. Employing this mechanical approach, petitioner
The Bankruptcy Court endorsed respondent’s proposed monthly payment of $144 but
required a 60-month plan period. [Citation.] The court agreed with the majority view that the
word “projected” in §1325(b)(1)(B) requires courts “to consider at confirmation the debtor’s
actual income as it was reported on Schedule I.” [Citation] (emphasis added [by court]).
This conclusion was warranted by the text of §1325(b)(1), the Bankruptcy Court reasoned,
III
The parties differ sharply in their interpretation of §1325’s reference to “projected
disposable income.” Petitioner, advocating the mechanical approach, contends that
“projected disposable income” means past average monthly disposable income multiplied by
financial circumstances are known or virtually certain, a bankruptcy court has discretion to
make an appropriate adjustment. Respondent has the stronger argument.
First, respondent’s argument is supported by the ordinary meaning of the term
“projected.” “When terms used in a statute are undefined, we give them their ordinary
meaning.” [Citation.] Here, the term “projected” is not defined, and in ordinary usage future
occurrences are not “projected” based on the assumption that the past will necessarily repeat
itself. For example, projections concerning a company’s future sales or the future cash flow
from a license take into account anticipated events that may change past trends. * * * While
a projection takes past events into account, adjustments are often made based on other
factors that may affect the final outcome. [Citation.]
Third, pre-BAPCPA case law points in favor of the “forward-looking” approach. * * *
Pre-BAPCPA bankruptcy practice is telling because we “‘will not read the Bankruptcy
Code to erode past bankruptcy practice absent a clear indication that Congress intended such
a departure.’” [Citation.] Congress did not amend the term “projected disposable income” in
2005, and pre-BAPCPA bankruptcy practice reflected a widely acknowledged and
* * *
In cases in which a debtor’s disposable income during the 6-month look-back period
is either substantially lower or higher than the debtor’s disposable income during the plan
period, the mechanical approach would produce senseless results that we do not think
Congress intended. In cases in which the debtor’s disposable income is higher during the
plan period, the mechanical approach would deny creditors payments that the debtor could
easily make. And where, as in the present case, the debtor’s disposable income during the
plan period is substantially lower, the mechanical approach would deny the protection of
Chapter 13 to debtors who meet the chapter’s main eligibility requirements. Here, for
all payments under the plan and comply with the plan.” And as petitioner concedes,
respondent could not possibly make the payments that the mechanical approach prescribes.
* * *
IV
* * * Consistent with the text of §1325 and pre-BAPCPA practice, we hold that when a
bankruptcy court calculates a debtor’s projected disposable income, the court may account
for changes in the debtor’s income or expenses that are known or virtually certain at the time
of confirmation. We therefore affirm the decision of the Court of Appeals.
Effect of Confirmation
A confirmed plan binds the debtor and all her creditors and clears all
remaining property from creditor claims. The plan may be modified after
confirmation.
Discharge
After a debtor completes all payments under the plan, the court will grant
him a discharge of all debts provided for by the plan, except the
nondischargeable debts for (1) unfiled, late-filed, and fraudulent tax returns;
(2) legal liabilities resulting from obtaining money, property, or services by
false pretenses, false representations, or actual fraud; (3) legal liability for
willful or malicious conduct that caused personal injury to an individual; (4)
domestic support obligations; (5) debts not scheduled unless the creditor
knew of the bankruptcy; (6) debts the debtor created by fraud or
embezzlement while acting in a fiduciary capacity; (7) most student loans;
(8) consumer debts for luxury goods or services in excess of $650 per
creditor if incurred by an individual debtor on or within ninety days before
*** Chapter Outcome***
Identify and define the nonbankruptcy compromises between debtors and creditors.
II. CREDITORS’ RIGHTS AND DEBTOR’S RELIEF
OUTSIDE OF BANKRUPTCY
Principally governed by state law; the rights and remedies of creditors are
varied.
A. CREDITORS’ RIGHTS
When a debtor fails to pay, the creditor may obtain a judgment against the
debtor to collect on the debt.
Prejudgment Remedies
To prevent a debtor from disposing of his assets a creditor may seek an
attachment, which is a judicial order bringing the property under court
custody. Garnishment may be sought by the creditor where the debtor is
owed money by a third party and is most often used against an employer or
bank.
Postjudgment Remedies
A writ of execution is issued subsequent to a judgment and is an order that
demands payment by the debtor; if unsatisfied, the creditor may order a levy
B. DEBTOR’S RELIEF
The rights of creditors and the debtor’s need for relief involve inherent
con<icts arising from:
1. the right of diligent creditors to pursue their claims to judgment and to
satisfy their judgments;
2. the right of unsecured creditors who have refrained from suing the
debtor; and
3. the social policy of giving relief to a debtor who has contracted debts
beyond his ability to pay.
Various forms of nonbankruptcy compromises have been developed to
resolve these con<icts.
Compositions
A common law or nonstatutory composition is an ordinary contract or
agreement between the debtor and two or more of her creditors under which
the creditors receive a proportional part of their claims and the debtor is
discharged from the balance of the claims. A composition is the State law
analogue of Chapter 11 of the Bankruptcy Act. As a contract, it requires
contractual formalities. By avoiding a con<ict among themselves to obtain
the debtor’s limited assets, all the creditors benefit.
Assignments for Benefit of Creditors
A common law or nonstatutory assignment for the benefit of creditors is a
debtor’s voluntary transfer of some or all of her property to a trustee, who
applies the property to the payment of all the debtor’s debts. This prevents
the debtor’s assets from being attached or executed and halts diligent
creditors in their race to attach, but does not discharge the debtor.
Equity Receiverships
A disinterested person (receiver) is appointed by the court in equity to
liquidate assets, run the business, or protect the assets until final action is
taken by the court. A receiver may be appointed on the petition of a secured
creditor, a judgment creditor, or a shareholder.